A trade war escalates tensions and disrupts economies, raising the risk of recession or supply chain disruptions. It can also derail international efforts to reduce barriers and promote stability. The conflict between the United States and China is no exception.
Typically, in a trade war one country imposes costs on another by limiting its imports from that target. But in the US-China conflict, China is the asymmetric party with greater market power. Beijing has weaponized its exports: it imposed high tariffs on critical raw materials like rare earth metals and magnets, which are needed by the electric vehicle and wind energy industries, and blacklisted key U.S. companies in its finance sector. The result is that the U.S. government collects $264 billion in higher customs duties from its Chinese importers since the start of 2024, a substantial increase over the previous year.
As a result, consumers are paying more for many products. Tariffs on Chinese goods push up prices for appliances, electronics and clothing, while tariffs on products from Latin America drive up the cost of coffee, bananas and wine. The combined impact of Trump’s announced tariffs will raise consumer prices by about 2.3 percent in the near term.
Adding to the costs, the tariffs can also make it harder to produce goods domestically. For example, the cost of importing components for cars—which cross US, Mexican and Canadian borders multiple times before being assembled into a finished vehicle—has risen due to new tariffs on those parts. Finally, the use of tariffs damages the United States’ image as a champion of free trade and cedes moral authority to China.